Tax dos and don’ts of employing casual workers

February 6, 2018

When you employ casual labour for a short period you need to take special care when agreeing and processing their pay. A mistake could leave you on the wrong end of a tax and NI bill. What steps should you take to avoid this?

An employer’s lot is not a happy one

You probably know from experience that these days employers must not only pay workers a fair wage for a fair day’s work, but provide workplace pensions, welfare and much more. You also have to act as unpaid tax and NI collectors by operating the increasingly complex PAYE system. An error that results in too little or NI being collected can leave you footing the bill. One potential pitfall to watch for is employing casual labour.

Different rules and concessions

At one time HMRC took a more relaxed approach to casual workers where they were employed for a week or less. However, currently the only concession is for short-term harvest workers and beaters for shoots. Broadly, if you employ them for two weeks or less you can pay them without deducting PAYE tax and NI.

Since the introduction of RTI, the golden rule is that, apart from harvest workers / beaters, you should tackle PAYE for casual and short-term employees in the same way as for permanent staff. This includes notifying HMRC of their starting and leaving details on a full payment submission (FPS).

Not enough time

When you employee someone for a matter of days or weeks, for example a student in the holidays, the chances are they won’t have a P45 from a previous job. So, you should give them the usual “starter checklist” to complete to establish the correct code to operate.

Ask them to fill it in as one of their first tasks on day one. It only takes a minute or two.

When you pay an employee, temporary or otherwise, who hasn’t given you a P45 or starter checklist, don’t make the common mistake of using the emergency code to work out their tax. You must use code BR, or insufficient tax will be collected and HMRC is likely to ask you to pay the shortfall.

Net pay arrangements

Another trap is agreeing a cash-in-hand amount of pay as this can cost you more than you might think.

Example: Acom takes on a student for temporary work. It agrees to pay him £50 in their hand, per day (which meets the minimum wage requirement). The student is paid for two weeks, i.e. ten working days, but leaves before completing the starter checklist. Acom must account for tax on the employee’s pay using code BR. To arrive at the £50 per day it has paid, it costs Acom £730 (£73 per day) for the two weeks. This means the PAYE tax and NHI has cost Acom almost half as much as the pay. Had Acom obtained the starter checklist it could have operated an emergency code, which would have reduced its cost to just over £580.

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